LEI – an identification number for legal entities (Legal Entity Identification number). A unique identification code for companies trading on financial markets (with shares, bonds, futures, foreign exchange, etc.). Each transaction carried out on the financial markets is linked to the trading partner via an LEI number. LEI codes are used by regulators to monitor financial markets. LEI codes link financial markets, companies and regulators. LEI numbers are issued by GLEIF-accredited LOUs. GLEIF – Global Legal Entity Identifier Foundation. NO TRADE WITHOUT LEI.
The advantages of an LEI code
The capture of customer data is probably the biggest advantage of the LEI number. Previously, ID cards had to be copied manually and checked for accuracy, which was a lengthy process considering the times. In addition, a lot of data was needed to ensure the secure path of a stock purchase. The concept of LEI numbering leads to an improvement of the process. With the help of digitization of the various steps, only a small online form is required today. Similarly, the updating, extension and deletion of company data are now subject to a functional system that can keep up well with the rapidly evolving international financial markets.
Open and transparent data minimizes the risk of an international financial transaction. This makes it easy to see who the trading partner is and what they represent. This provides security that did not exist in this form before the LEI number.
An LEI number is standardized via ISO certificate 17442. It consists of a combination of 20 digits and letters
1. LOU ID
3,Legal entity identifier
The digits 1-4 always indicate the ID of the LOU that issued the LEI. The digits 5-6 always have the value 0. Digits/letters 7-18 are unique for each entity. The digits 19-20 are used for verification.
According to the standard, each LEI is associated with the following minimum information:
Official name of the legal entity by which it is registered in the local registry. Registered address of the legal entity. Country of registration The country name code and its subdivisions. The date of the first LEI assignment; the date of the last update of the LEI information and the expiration date, if applicable.
LEI codes are all about making connections!
GLEIF’s vision is to create a uniform registration number system for all companies worldwide. This would include identifiers that provide standardized and high-quality reference data.
„We believe that ultimately there should be an identity behind every business. Having an LEI will help achieve that goal.”
GLEIF – Global Legal Entity Identifier Foundation.
Before the introduction of the LEI in 2012, there were already numbers that the authorities could use to track money transfers. However, these numbers could only be used to track money transfers within a country’s own borders, which meant that risk assessment of international financial transactions was only possible to a limited extent. This lack of transparency led to a financial crisis in 2008, which is why the leading industrialized and emerging countries decided to introduce a uniform and international system at the G20 summit in Pittsburgh in September 2009.
It was implemented by the Finacial Stability Board, which had been established at the meeting in London a few months earlier. This organization oversees the global financial system. In June 2014, GLEIF was established as a non-profit organization by the Financial Stability Board with the mission of promoting LEI. Through GLEIF, business people, companies and organizations can access the Global LEI Index. This is an important source of high-quality data on reference entities. Access to the data is free of charge. GLEIF is overseen by the LEI Regulatory Oversight Committee, whose members come from all over the world. Accordingly, GLEIF is not affiliated with any state.
The ISO 17442 standard defines a set of data with which the legal entity can be identified beyond doubt. Each applicant must provide this data. This so-called Level1 data includes:
-The name of the legal entity. This must correspond to the official directories.
-The country in which the company was founded
-Codes for the country names and, if applicable, the sub-areas
-The date of LEI assignment, the last update and the expiration date.
Level 1 data thus provides precise information about the rights holder
Level 2 data provides information about the relationship between the companies. Level-2 data can only be submitted by companies whose parent company combines the financial statements of its subsidiary into a single set of financial statements (consolidation). Leven-2 data can only be submitted with the latest joint financial statements of the parent and subsidiary. By doing so, the company confirms the corporate relationship with the parent company.
The MiFID II Directive
The acronym MiFID stands for Markets in Financial Instrument Directive. This regulation is intended to protect investors, enable greater competition and harmonize the European financial market. The MiFID I Directive came into force on January 31, 2007. It was valid until January 2, 2018, when it was replaced by the new MiFID II Directive. The term MiFIR often appears in connection with MiFID-II. Often, the two terms are written as the unit MiFID II/MiFIR. MiFIR is the abbreviation for Markets in Financial Instruments. It is the associated regulation.
The implementation of the new guidelines was a great challenge for the companies. Just familiarizing oneself with the 20,000-page set of regulations was not a task that could be completed in an afternoon.
Many of the regulations concern the sale of securities to private customers. For commercial customers, it matters little. The only significant impact of MiFID II is on LEI numbers. As of January 3, 2018, all traders who deal in securities as entrepreneurs must have this number.